’)
With the losses in the stock market over the past few years, many investors who have been “do-it-yourselfers” in the past are now turning to financial advisors for help in developing a recovery plan. Investing can seem easy when the stock market is cooperating, but a bear market like the one we have just been through, when stocks dropped by 50% in a matter of 16 months, is a reminder that managing investments might be better left to professionals. There are all types of financial advisors and planners. Here are five questions you should ask before signing any paperwork from a financial advisor.
- What Is Your Background and Experience Level? If your goal is to get professional help with your investments, it makes sense to work with someone who knows what they’re doing. Just like you want the most qualified medical professionals to care for your physical health, you should look for the most qualified financial professional to manage your financial health. You should feel comfortable with the knowledge and experience level of your financial advisor.
- How Do You Develop Your Investment Strategies? Your financial advisor should be able to clearly explain his process for making recommendations. Is your money going to be invested based on your needs and preferences? Or is every client’s money invested in the same manner? When it comes to investments, one size does not fit all. Make sure you have an advisor who will listen to your goals, fears, and other important factors and develop an investment strategy that’s based on your specific situation.
- How Are You Compensated? Clients of financial advisors usually have a choice to either pay traditional commissions when there is activity in their account or to pay an annual fee for their account management. If you’re an active investor, the fee-based approach is probably going to be most effective. A buy- and-hold investor will probably do better in a commission-based account. You also have a right to know how your advisor is paid for selling mutual funds, insurance, and other various investment products, as some are paid special incentives to push certain investment solutions that may or may not be in your best interest.
- How Often Will I Hear From You? The number one complaint of those working with financial advisors is a lack of steady communication. Your communication expectations should be set before you start working with an advisor and both parties should feel that the communication plan is reasonable. For instance, you might decide to touch base quarterly on the phone and meet annually to review investment performance and potential changes to the portfolio. You should also have an understanding of whether or not you authorize your advisor to alter your portfolio without speaking to you first.
- Is Your Licensing Current And Do You Have A Clean Record? Financial Advisors are closely monitored and any customer complaints or regulatory punishments are available as public information. Search for your potential advisor at www.finra.org to see if there are any blemishes on his or her record that might concern you. FINRA, or the Financial Industry Regulatory Authority, offers a service called Brokercheck that publishes all regulatory issues in an advisor’s history.
The right advisor can take a lot of the worry and stress out of investing, while the wrong advisor can be a source of great frustration. Take the time to interview several candidates to find the one who is the best match for you.
related visualeconomic articles
